The Pennant Group’s (NASDAQ: PNTG) strategy for pursuing potential acquisitions is rooted in an operational model that emphasizes the role of local agency leaders. This approach will continue as transaction opportunities arise for Pennant, which CEO Danny Walker describes as a “growth company.”
For prospective deals, Pennant scouts for agencies that show strong promise for organic growth that have “talented” local leaders or entrepreneurs in place. Pennant then leverages the resources in its platform to foster growth.
“We do acquire some high-quality agencies or senior living communities that have a foundation of a strong local team, but maybe have reached a point of constraint in their growth process that we can come in and help them achieve that growth,” Walker said. “A lot of the owners are either small ‘moms-and-pops’ or regionals, and they care a lot about the continuation of the legacy that they’ve built in their operation. One of our calling cards is to continue to really shine a light on that legacy.”
Walker made the remarks during the virtual Oppenheimer 32nd Annual Healthcare Conference.
In addition to promising leadership on the seller side, Pennant recruits local administrators among entrepreneurs from a range of industries as well as candidates from within the health care field, Walker said.
These administrators are charged with building relationships with the community and referral partners and making on-the-ground business decisions, according to CFO Jennifer Freeman.
The national platform provides a common electronic medical records platform, as well as financial, legal and human resources support, among other shared services.
Local administrators are incentivized to achieve financial, quality and compliance benchmarks.
“We then group 3 to 5 operations together as clusters and cross incentivize those leaders, both upside and downside to drive, peer accountability, and shared ownership,” Freeman said at the conference. “This innovative operating model is our unique differentiator.”
This cadre of local administrators may see some new members as the company picks up pace on acquisitions after taking a break in Q4 2021.
Walker indicated that Pennant was looking to acquire within its existing 14-state footprint as well as in adjacent markets across all of its business lines. Based in Eagle, Idaho, Pennant operates 88 home health and hospice agencies in addition to 54 senior living communities.
Pennant completed 11 acquisitions during 2021 in addition to 15 in 2020. Pennant’s home health and hospice segment saw a 22% revenue increase to $309.6 million for full-year 2021.
“We have those local leader teams built. It’s easier for us to acquire,” Walker said. “We kind of plant our flag in a state or market; we start to grow from there. We continue to expand but we do so carefully and consider it and make sure that we’re focused on achieving long-term returns and growth.”
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